Seoul: The benchmark KOSPI has surpassed the 4,000 mark for the first time, marking a significant milestone in Korea’s capital markets. This surge is attributed to various factors, including ample liquidity driven by low interest rates, a rebound in the semiconductor cycle due to rising demand for artificial intelligence, and expectations of further rate cuts by the U.S. Federal Reserve. Investor confidence has also been bolstered by the Lee Jae Myung administration’s commercial law amendments, which have strengthened shareholder rights through stricter fiduciary duties for directors and the expansion of multiple derivative suits. These governance reforms have fueled hopes of resolving the longstanding “Korea discount,” attracting foreign investors whose share of market capitalization has climbed to 34 percent, surpassing 1,100 trillion won for the first time.
According to Yonhap News Agency, while the rally indicates renewed optimism, it also necessitates caution. Much of the recent surge is driven by an influx of funds rather than corporate earnings or economic fundamentals. Investor deposits have increased by 40 percent this year, rising from 57 trillion won to 80 trillion won, and credit financing for stock purchases has nearly surged by 50 percent to 23 trillion won. This rise in “borrowed investment” reflects a fear of missing out, as investors chase momentum in a rising market. With tighter property regulations, liquidity that once flowed into real estate is now moving into stocks, amplifying bullish sentiment.
However, market exuberance detached from the real economy rarely endures. Korea faces significant challenges, including slowing exports due to renewed U.S. tariffs and weak domestic demand. Growth is widely expected to remain below 2 percent next year, and debt burdens among small businesses and marginal firms are substantial. Without stronger fundamentals, the current rally risks becoming a “mirage.” Nearly half of the market’s recent capitalization gains are concentrated in just two companies-Samsung Electronics and SK hynix-while many mid- and small-cap stocks have declined. Despite the Democratic Party’s celebration of the 4,000 milestone, policymakers must acknowledge the risks beneath the euphoria.
The increasing share of foreign investors presents a double-edged sword. If U.S. inflation resurges or the AI boom proves unsustainable, foreign funds could exit swiftly, triggering a sharp market correction. Regulators must closely monitor signs of overheating, such as surging credit loans, and ensure mechanisms are in place to stabilize volatility.
Ultimately, the foundation of the stock market is rooted in economic strength. Companies must enhance competitiveness through innovation, while the government must build a resilient industrial ecosystem and productivity base. Only then can Korea develop a form of “securities capitalism,” where investment capital flows into industries rather than property, marking the true end of the country’s longstanding myth of ever-rising real estate prices.